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How to Enhance Employee Financial Wellbeing

The economic uncertainty of 2020 has worsened the financial wellbeing of many employees. People who can't confidently manage their finances today will not be able to retire in the future or prepare for unexpected expenses along the way.

More than 40% of employees want their employers to provide support for day-to-day finances.[1] For employers, poor financial wellbeing can reduce productivity and increase absenteeism and general disengagement. For most workers, financial stress affects not only their retirement readiness but also their overall health.

Organizations that assist employees with their financial wellbeing can benefit from those initiatives through a more robust culture and bottom line. Here are three actions employers can take to improve retirement readiness and money management in their workforce.


Analyze Your Workforce for Gaps in Financial Wellbeing

Employers can extract and analyze aggregate data to help scale and focus financial wellbeing programs to create more productive workplaces and boost retirement readiness.

If your organization is similar to the average employer, the need to address retirement readiness will be significant. Only one in three U.S. workers will have saved enough to retire comfortably by age 67.[2] U.S. workers should begin saving 16% of their annual pay – including employer contributions – by age 25 to accumulate enough savings to retire comfortably by 67.[3] However, employees aren't saving enough. The average worker retiring at 67 would have to cut their standard of living 20% from pre-retirement levels to overcome the savings shortfall.[4]

Financial wellbeing varies widely by industry. For example, employees at technology companies will often have more retirement readiness than workers at retail stores. Industry benchmarks can help employers understand the financial wellbeing of their workforce.

Industry benchmarking is one tool that may be useful, but often a more in-depth analysis is needed as every employee population is unique. A detailed analysis can uncover specific financial wellbeing challenges within an organization. This analysis could be done by reviewing existing employee data or conducting an employee survey.

An in-depth look at employee financial wellbeing can also assist with other strategic goals. For example, closing the gender pay gap has become a priority for many organizations as they strive to meet their diversity, equity, and inclusion goals. Knowing the financial wellbeing differences in gender and race can help organizations develop tailored solutions to those issues. Employers could also review how prepared employees are for retirement by gender and/or race to engage the effectiveness of their financial wellbeing benefits toward their diversity, equity, and inclusion goals.


Improve Communication of Financial Wellbeing Benefits

One of the biggest challenges can come not from the financial wellbeing benefits themselves, but the communication around them.

Many organizations often fall short because of a communications gap between what is offered to employees and what they are aware of and engaging with. This year, employers have increased the frequency of digital communications, especially around responses to the pandemic, to showcase new wellbeing initiatives. Advanced information technologies, such as artificial intelligence and machine learning, can facilitate personalized financial wellbeing initiatives.

Employers may need to tailor different financial wellbeing messages by generation, primarily focused on younger workers and women. For example, because of medical inflation, 30-year-old workers will have to save more to meet their retirement health care costs than their 60-year-old colleagues. Organizations can develop communications materials that target younger workers to explain how they should realistically project their retirement age. Financial wellbeing education and tools can help younger workers budget better and save more.

This approach can be applied to the gender pay gap, too. Employers can use targeted communications and tools to encourage women to save more, defer retirement and maximize Social Security benefits because they typically live longer than men. Other groups of employees may have financial wellbeing needs that can be addressed through well-designed programs. Organizations that have taken the time to study their employees' financial wellbeing will have more success in driving behavior change through better communications.


Address Your Employees' Unique Financial Wellbeing Needs

Once employers identify the gaps in their employees' savings and improve how they communicate with their employees, they can devise programs to address individual workforce needs. For example, employers should consider four simple steps with their retirement plans that have been shown to improve financial wellbeing:

  1. Organizations can educate employees on how small changes in their savings rates can improve retirement readiness, doing so with online tools and resources.
  2. Retirement plan sponsors can create or expand automatic contribution escalation features.
  3. Organizations can set higher savings targets for matching contributions and contribution escalation in their retirement plans.
  4. Plan sponsors can provide lifetime income solutions to help all employees — particularly women — better manage longevity risk. New regulations have made it easier for employers to add annuities to workplace retirement plans.

Using better data, communications, education, tools, and retirement plan designs, employers can improve their workers' financial wellbeing and boost productivity. Organizations can be a positive force in creating financial wellbeing habits that serve their employees throughout their lives.

[1] Aon, U.S. Defined Contribution Employer Survey Report, 2020

[2] Aon, The Real Deal: Retirement Income Adequacy Study, 2018

[3] Aon, The Real Deal: Retirement Income Adequacy Study, 2018

[4] Aon, The Real Deal: Retirement Income Adequacy Study, 2018

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